Operations

Management
Chapter 16 –
Just-in-Time and
Lean Production Systems
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e

© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. 16 – 1
 Outline
 Global Company Profile: Green
Gear Cycling
 Just-in-Time and Lean Production
 Suppliers
 Goals of JIT Partnerships
 Concerns of Suppliers

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 Outline – Continued

 JIT Layout
 Distance Reduction
 Increased Flexibility
 Impact on Employees
 Reduced Space and Inventory

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 Outline – Continued
 Inventory
 Reduce Variability
 Reduce Inventory
 Reduce Lot Sizes
 Reduce Setup Costs
 Scheduling
 Level Schedules
 Kanban
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 Outline – Continued
 Quality
 Employee Empowerment
 Lean Production
 Building a Lean Organization
 5 S’s
 Seven Wastes
 JIT In Services
© 2006 Prentice Hall, Inc. 16 – 5
 Learning Objectives
When you complete this chapter, you
should be able to:
Identify or Define:
 Variability
 Kanban
 5 S System
 Seven Wastes

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 Learning Objectives
When you complete this chapter, you
should be able to:
Describe or Explain:
 Just-in-time (JIT) Philosophy
 Pull Systems
 Push Systems
 The Goals of JIT Partnerships
 Lean Production
 Principles of Toyota Production System
© 2006 Prentice Hall, Inc. 16 – 7
 Green Gear Cycling
 Designs and manufactures high
performance travel bicycles (bike-in-a-
suitcase)
 Strategy is mass customization with low
inventory, work cells, and elimination of
machine setups
 Major focus on JIT and supply-chain
management
 One day throughput time
 Focus on quality
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 Just-In-Time and
Lean Production

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 Waste Reduction

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 Waste Reduction

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 Throughput
• Throughput time is the measured
amount of time that is required to
complete a finished product from
beginning to end. This includes its
beginnings as raw material all the way
through the completion of finished
goods ready to ship.

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 Variability Reduction

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 Causes of Variability

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 • Any idea how Zara works?
• Is that a push or a pull system?

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 Pull Versus Push Systems

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 Pull Versus Push Systems

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 JIT and Competitive
Advantage
JIT Requires:

Table 16.1
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 JIT and Competitive
Advantage
Which Results In:

Which Yields:

Table 16.1
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 Suppliers
 JIT partnerships exist when a
supplier and purchaser work
together to remove waste and drive
down costs
 Four goals of JIT partnerships are:
 Elimination of unnecessary activities
 Elimination of in-plant inventory
 Elimination of in-transit inventory
 Elimination of poor suppliers
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 JIT Partnerships
Suppliers
Few suppliers
Nearby suppliers
Repeat business with same suppliers
Support suppliers so they become or remain
price competitive
Competitive bidding mostly limited to new
purchases
Buyer resists vertical integration and subsequent
wipeout of supplier business
Suppliers encouraged to extend JIT buying to
their suppliers
Table 16.2
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 JIT Partnerships

Table 16.2
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 How to Optimize Your Inventory Costs
• How much inventory should I buy? How much should I
manufacture? Will I have too much product, or too little?
• If these questions sound awfully familiar, it’s because
you’re not alone. This problem is actually so old that it
has its own name: “The Newsvendor Problem“.
Newsvendors in the 19th century faced this dilemma
every day: if I buy too many newspapers I won’t be able
to sell them all, but if I buy too few, I’ll miss potential
sales.
• The good news is that you can follow a few simple rules-
of-thumb that will help you plan better and, as a result,
could have a significant impact on your cash flow.

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 Some basic terms:

•Underage Cost – Profit lost as a result of not having

enough inventory. If you’re selling pizza for $10 a
slice and it costs you $2 worth of inventory to
manufacture, the underage cost is $8, because
you’ve lost this amount by not being able to supply
the demand.
•Overage Cost – The loss incurred as a result of
ordering too much inventory. If you’re selling a slice
of pizza for $10, and it $2 worth of inventory to
manufacture, the overage cost is $2, because you’ve
ordered too much inventory.

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 • Assuming you don’t have a crystal ball that tells
you how much inventory to order, you will probably
do what the rest of us do – guess, or estimate the
sales in the coming days or weeks and order
inventory accordingly. However, while the math
behind the newsvendor model is pretty complex, it
still comes to a very simple conclusion.

• If your overage costs are significantly lower than

your underage costs, as in the example given
above – you should order more than what you
estimate the sales to be. This is because every sale
of pizza slice you’ve missed costs you 4 times
more than the loss from a slice you haven’t sold at
the end of the day.

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 • On the other hand, if your underage costs are
significantly higher than your overage costs,
you should order less than what you estimate
the sales to be. This is because the loss from a
slice you haven’t sold and had to throw away is
much higher than the costs you incur when
you’re not able to sell to an additional customer.

• The Newsvendor model is a great way to help

optimize your inventory costs.

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 • With the values above, if you think that it is
much more likely that you will be in a
situation of overage than underage (for
example 90% and 10%), what would be the
expected value of overage? And of
underage? What would you find more
convenient to do?
• With probabilities 50%-50%?
• And with 80% and 20%?

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 • If I have 10 slices of pizza that I am not
selling (it rains) I incur a cost of 20$
• If I could sell 10 slices but I don’t have
them with me I would lose the
OPPORTUNITY to gain 80$, so I miss this
opportunity, I stand a cost of 80$

• If the probability of rain/sun is 50-50, then,

I should bring 10 slices of pizza

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 JIT Partnerships

Table 16.2
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 • Problem of time inconsistency

You know that you have to take a pill at

11 am, BUT you also know that most
likely you will forget. So you need a
COMMITMENT DEVICE.

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 JIT Partnerships
Shipping
Scheduling inbound freight
Gain control by using company-owned or
contract shipping and warehousing
Use of advanced shipping notice (ASN)

Table 16.2
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 JIT Layout
Reduce waste due to movement
Layout Tactics
Build work cells for families of products
Include a large number operations in a small area
Minimize distance
Design little space for inventory
Improve employee communication
Use poka-yoke devices
Build flexible or movable equipment
Cross train workers to add flexibility
Table 16.3

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 Distance Reduction

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 Group technology 
is a manufacturing philosophy or
principle whose basic concept is to
identify and bring together related or
similar parts and processes, to take
advantage of the similarities which exist,
during all stages of design and
manufacture.

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 Increased Flexibility

 Cells designed to be rearranged

as volume or designs change
 Applicable in office environments
as well as production settings
 Facilitates both product and
process improvement

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 Impact on Employees

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 Reduced Space and
Inventory

 With reduced space, inventory

must be in very small lots
 Units are always moving because
there is no storage

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 Inventory

Table 16.4
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 Reduce Variability
(lower variability allows to better
calculate the optimal inventory level)

Inventory level

Process
Scrap downtime

Setup Quality
time problems

Late deliveries
Figure 16.1
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 Reduce Variability

Inventory
level

Process
Scrap downtime

Setup Quality
time problems

Late deliveries
Figure 16.1
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 Reduce Lot Sizes
Q1 When average order size = 200
average inventory is 100
200 –
Inventory

Q2 When average order size = 100

average inventory is 50

100 –

Time

Figure 16.2
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 Reduce Lot Sizes
 Ideal situation is to have lot sizes
of one pulled from one process to
the next
 Often not feasible
 Can use EOQ analysis to calculate
desired setup time
 Two key changes
 Improve material handling
 Reduce setup time
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© 2006 Prentice Hall, Inc. 16 – 45
 EOQ
Economic Order Quantity
Economic order quantity (EOQ) is the ideal
order quantity a company should purchase
to minimize inventory costs such as holding
costs, shortage costs, and order costs. This
production-scheduling model was
developed in 1913 by Ford W. Harris and has
been refined over time. The formula
assumes that demand, ordering, and
holding costs all remain constant.
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 Formula for Calculating Economic
Order Quantity (EOQ)
(Optimal lot size, namely optimal
order size)

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 Lower Setup (Order) Costs
The lot size that minimizes the costs

Holding cost
Sum of ordering
and holding costs
Cost

T1
Setup cost curves (S1, S2)
T2
S1
S2

Lot size
Figure 16.3

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 Reduce Setup Costs
 High setup (fixed order) costs
encourage large lot (order) sizes,
therefore implies higher costs of
inventories due to their holding costs
 Reducing setup costs reduces lot
size and reduces average inventory
 Setup time can be reduced through
preparation prior to shutdown and
changeover
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 Reduce Setup Times
Initial Setup Time 90 min —

Separate setup into preparation and actual

setup, doing as much as possible while the
Step 1 machine/process is operating
(save 30 minutes)

60 min —
Move material closer and
Step 2 improve material handling
(save 20 minutes)
45 min —
Standardize and
Step 3 improve tooling
(save 15 minutes)
25 min —
Use one-touch system to eliminate
Step 4
adjustments (save 10 minutes)
15 min —
Training operators and standardizing 13 min —
Step 5 work procedures (save 2 minutes)
Figure 16.4 Repeat cycle until subminute —
setup is achieved
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 Scheduling
 Schedules must be communicated
inside and outside the organization
 Level schedules
 Process frequent small batches
 Freezing the schedule helps
stability
 Kanban
 Signals used in a pull system

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 Kanban
1. User removes a
standard sized
container
2. Signal is seen by
the producing
department as
authorization to
replenish
Signal marker
on boxes

Figure 16.6 Part numbers

mark location
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 Scheduling Small Lots
JIT Level Material-Use Approach
A A B B B C A A B B B C

Large-Lot Approach
A A A A A A B B B B B B B B B C C C

Time
Figure 16.5
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 More Kanban
 When the producer and user are not
in visual contact, a card can be used
 When the producer and user are in
visual contact, a light or flag or
empty spot on the floor may be
adequate
 Since several components may be
required, several different kanban
techniques may be employed
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 More Kanban
 Usually each card controls a specific
quantity or parts
 Multiple card systems may be used if
there are several components or
different lot sizes
 Kanban cards provide a direct
control and limit on the amount of
work-in-process between cells

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 More Kanban
 In an MRP (Material Requirement
Planning) system, the schedule can be
thought of as a build authorization and
the kanban a type of pull system that
initiates actual production
 If there is an immediate storage area, a
two-card system can be used with one
card circulating between the user and
storage area and the other between the
storage area and the producer
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 Material Requirements
Planning

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 Kanban Signals

Kanban Finished Customer

goods order
Work
cell
Ship

Raw Kanban Final Kanban

Material assembly
Supplier
Kanban Kanban
Sub-
Purchased assembly
Parts Kanban
Supplier

Figure 16.7

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 The Number of Cards
or Containers
 Need to know the lead time needed to
produce a container of parts
 Need to know the amount of safety
stock needed

Demand during Safety

lead time + stock
Number of kanbans =
Size of container

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 Number of Kanbans Example
Daily demand = 500 cakes
Production lead time = 2 days
(wait time +
material handling time +
processing time)
Safety stock = 1/2 day
Container size = 250 cakes

Demand during lead time = 2 days x 500 cakes = 1,000

1,000 + 250
Number of kanbans = 250 =5

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 Advantages of Kanban
 Allow only limited amount of faulty or
delayed material
 Problems are immediately evident
 Puts downward pressure on bad
aspects of inventory
 Standardized containers reduce
weight, disposal costs, wasted space,
and labor

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 Quality
 Strong relationship
 JIT cuts the cost of obtaining good
quality because JIT exposes poor
quality
 Because lead times are shorter,
quality problems are exposed sooner
 Better quality means fewer buffers
and allows simpler JIT systems to be
used

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 JIT Quality Tactics

Use statistical process control

Empower employees
Build fail-safe methods (poka-
yoke, checklists, etc.)
Expose poor quality with small
lot JIT
Provide immediate feedback
Table 16.6
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 Employee Empowerment
 Empowered employees bring their
knowledge and involvement to daily
operations
 Some traditional staff tasks can move to
empowered employees
 Training, cross-training, and fewer job
classifications can mean enriched jobs
 Companies gain from increased
commitment from employees

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 Lean Production

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 Toyota Production System
 Work shall be completely specified as to
content, sequence, timing, and outcome
 Every customer-supplier connection must
be direct
 Product and service flows must be simple
and direct
 Any improvement must be made in
accordance with the scientific method at
the lowest possible level of the
organization
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 Lean Systems
 Use JIT techniques
 Build systems that help employees
produce perfect parts
 Reduce space requirements
 Develop close relationships with
suppliers

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 Lean Systems
 Educate suppliers
 Eliminate all but value-added
activities
 Develop the workforce
 Make jobs more challenging
 Reduce the number of job classes

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 The 5 S’s
 Sort/segregate
 Simplify/straighten
 Shine/sweep
 Standardize
 Sustain/self discipline
 Safety
 Support/maintenance
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 The 5 S’s

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 The 5 original Japanese names

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 Seven Wastes

 Overproduction A broader
 Queues perspective
suggests other
 Transportation resources like
energy and water
 Inventory are wasted but
 Motion should not be

 Over-processing
 Defective product
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 7-8-9-10 Wastes to be avoided

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 A different example

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 JIT in Services
 The JIT techniques used in
manufacturing are used in services
 Suppliers
 Layouts
 Inventory
 Scheduling

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